The impact of external reference price on consumer price expectations

Kopalle, Praveen K.; Lindsey-Mullikin, Joan

doi:10.1016/j.jretai.2003.09.002

Cited by 121 publications

(72 citation statements)

References 40 publications

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“…By offering to refund a multiple of the price difference if the consumer finds the same product at a cheaper price elsewhere, retailers encourage shoppers' fidelity by ensuring that they will not feel ripped off. And price sensitivity can explain the widespread use of comparative price claims (Kopalle and Lindsey-Mullikin, 2003), and occasional promotional sales, as occasionally low prices look like good deals and boost WTP.…”

Section: Discussionmentioning

confidence: 99%

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Isoni

2010

Theory Decis

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Several experimental studies have reported that an otherwise robust regularity -the disparity between Willingness-To-Accept and Willingness-To-Pay -tends to be greatly reduced in repeated markets, posing a serious challenge to existing referencedependent and reference-independent models alike. This paper offers a new account of the evidence, based on the assumptions that individuals are affected by good and bad deals relative to the expected transaction price (price sensitivity), with bad deals having a larger impact on their utility ('bad-deal' aversion). These features of preferences explain the existing evidence better than alternative approaches, including the most recent developments of loss aversion models.Keywords: WTA/WTP disparity, price sensitivity, bad-deal aversion, Vickrey auctions, reference-dependence, loss aversion. JEL classification: D11, D44 1The disparity between the Willingness-To-Accept (WTA) and Willingness-To-Pay (WTP) measures of value has been one of the most widely studied behavioural regularities in the last four decades. The disparity -which has been documented in a large number of contingent valuation and experimental studies 1 -poses serious challenges to Hicksian consumer theory and its applications to welfare economics.While in Hicksian consumer theory WTA and WTP can reasonably be expected to differ only by a few percentage points (Willig, 1976;Randall and Stoll, 1980) many studies have reported differences of much higher orders of magnitude. Such large disparities suggest that indifference curves are not reversible (Knetsch, 1989). They imply that the impact of policies that produce changes in resource allocation cannot be evaluated indifferently using the two measures, and that the resulting welfare changes cannot be approximated by changes in consumer's surplus. If improvements and deteriorations are regarded as highly asymmetrical, the Coase theorem no longer holds. Even in the absence of transaction costs and income effects, the outcome of a negotiation critically depends on the allocation of property rights. Yet, recently, several studies have found that the extent of the disparity is greatly reduced for experienced traders (List, 2003a(List, , 2004 and when agents repeatedly interact in experimental markets (e.g. Shogren et al., 2001;Loomes et al., 2003).Taken at face value, this whole body of evidence poses a theoretical puzzle.On the one hand, the existence and robustness of the disparity in one-off situations seems to indicate that preferences depart from the assumptions of standard consumer theory in systematic ways. This has led to the development of reference-dependent models that incorporate such departures (e.g. Tversky and Kahneman, 1991;Sugden, 2003;Köszegi and Rabin, 2006;Loomes et al., 2009). On the other hand, preferences elicited in experimental markets, in which subjects face feedback, repetition, and incentives, appear sometimes to be compatible with the properties generally assumed in reference-independent economic models. This paper offers a solu...

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Section: Discussionmentioning

confidence: 99%

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Isoni

2010

Theory Decis

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“…In particular, we define sale price atypicality as the perceived discrepancy of the sale price from the price category that the customer regards as normal (Monroe 1971;Kopalle and Lindsey-Mullikin 2003). For GPDs, the sale price refers to the price promised to the customer for winning the price gamble.…”

Section: The Diagnosticity Conceptmentioning

confidence: 99%

Gambled Price Discounts: A Remedy to the Negative Side Effects of Regular Price Discounts

Alavi

Bornemann

Wieseke

2015

Journal of Marketing

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In the context of price discounts, a special type of price promotion, in which savings depend on the outcome of a gamble and are thus uncertain, has recently achieved some popularity. The question arises as to whether such gambled price discounts (GPDs) incur the negative reference price effect—that is, a downward shift in customers’ internal reference price (IRP)—which is often associated with regular price discounts (RPDs). From several studies, including two longitudinal field experiments, the authors find that GPDs indeed alleviate the negative reference price effect: IRPs and actual repurchasing tend to be lower for RPDs than for GPDs and a no-discount control condition. Moreover, the authors explore the psychological underpinnings of these effects and show that the different consequences of GPDs versus RPDs on IRPs are more pronounced if information regarding product quality is limited. The authors demonstrate that findings are robust to variations of GPD discount levels and the probability of winning.

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“…-"Updating" reference prices: Finally, attempts can be made to raise reference prices over time through simple habituation effects ("updates") (Briesch et al 1997;Kopalle/Lindsey-Mullikin 2003). Initially, moderate introductory prices are charged, which push the reference prices up over time and later allow higher selling prices.…”

Section: User-fee Financing and Behavioural Pricing: Willingness-to-pmentioning

confidence: 99%

Political drivers of and barriers to Public-Private Partnerships – The role of political involvement

Gawel¹

2017

ZögU

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: The application and design of public-private partnerships between the extremes of purely public or purely private task fulfilment in public services is, in practice, subject to political processes. Decisions about PPPs (realisation, arrangement) are taken in the political arena and are therefore not theoretical optimisation exercises. The interests and resources of the actors who participate in the political decision-making process as well as the rules of the political process have a powerful influence on whether, in what areas, and in what form PPPs are realised. The distance between this output and solutions that are theoretically desirable given certain ideal goals (e.g. efficiency) and conditions can be referred to as political bias. So what role does the political process play in the realisation of PPPs, in the actual design of PPPs, and in their performance? Using public choice and institutional economics theory this paper analyses what chances of success PPPs have given the existing decision-making structures and the inherent incentives for participating actors, and in what way political influence is brought to bear in the first place. Furthermore, aspects of political science in this field (legitimacy, democratic control) are considered as well. Using PPPs there might be a trade-off between reduced democratic control, but also reinforced market control. It turns out that political involvement might be both an important driver as well as an obstacle for (efficient) PPPs and that it is likely to decrease efficiency either way. A case study for userfinancing PPPs in the transport sector highlights the problems of political renitency. Terms of use: Documents in

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The impact of external reference price on consumer price expectations

Cited by 121 publications

References 40 publications

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Gambled Price Discounts: A Remedy to the Negative Side Effects of Regular Price Discounts

Political drivers of and barriers to Public-Private Partnerships – The role of political involvement

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